Subsidy allowances for business grants

The UK was subject to European Union State Aid laws which restricted the amount government grants, loans or tax reductions a business can receive.

Although the UK has left the European Union it remains bound by its international commitments, including subsidy obligations set out in the Trade and Cooperation Agreement with the European Union.

From 4 March 2021 new subsidy allowances were established for the COVID-19 business grants schemes. Applications made prior to that date are subject to the previous State Aid rules.

Business grants are covered by 3 subsidy allowances, which can be combined together if conditions permit.

Small Amounts of Financial Assistance Allowance

An allowance of up to £335,000 (subject to exchange rates) over any period of 3 years.

COVID-19 Business Grant Allowance

A further allowance of up to £1,600,000, which includes any grants previously received under the COVID-19 business grant schemes and any State aid previously received under Section 3.1 of the European Commission's Temporary Framework across any other UK scheme. This may be combined with the Small Amounts of Financial Assistance Allowance to equal £1,935,000

COVID-19 Business Grant Special Allowance

If you have reached your limits under the Small Amounts of Financial Assistance Allowance and COVID-19 Business Grant Allowance, you may be able to access a further allowance of funding under these scheme rules of up to £9,000,000, provided the following conditions are met:

a. The Special Allowance covers only the applicant's uncovered fixed costs incurred during the period between 1 March 2020 and 31 March 2022, including such costs incurred in any part of that period ('eligible period');

b. Applicants must demonstrate a decline in turnover during the eligible period of at least 30% compared to the same period in 2019. The calculation of losses will be based on audited accounts or official statutory accounts filed at Companies House, or approved accounts submitted to HMRC which includes information on the applicant's profit and loss;

c. 'Uncovered fixed costs' means fixed costs not otherwise covered by profit, insurance or other subsidies;

d. The grant payment must not exceed 70% of the applicant's uncovered fixed costs, except for micro and small enterprises (for the purposes of this scheme defined as less than 50 employees and less than £9,000,000 of annual turnover and/or annual balance sheet), where the grant payment must not exceed 90% of the uncovered fixed costs;

e. Grant payments under this allowance must not exceed £9,000,000 per single economic actor. This allowance includes any grants previously received in accordance with Section 3.12 of the European Commission's Temporary Framework; all figures used must be gross, that is, before any deduction of tax or other charge;

f. Grants provided under this allowance shall not be cumulated with other subsidies for the same costs

Definition of an 'undertaking in difficulty'

The subsidy allowance rules limit the amount of assistance that can be provided to businesses which were in financial difficulties before the Coronavirus outbreak began. This is known as being an 'undertaking in difficulty'. A full definition of this term can is shown below. If your business was in this position then your subsidy allowance limit is the Small Amounts of financial Assistance Allowance of approximately £335,000 received over the previous three year period.

'Undertaking in difficulty' means an undertaking in respect of which at least one of the following circumstances occurs:

a. In the case of a limited liability company (other than an SME that has been in existence for less than three years) where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital. For the purposes of this provision, 'share capital' includes, where relevant, any share premium.

b. In the case of a company where at least some members have unlimited liability for the debt of the company (other than an SME that has been in existence for less than three years) where more than half of its capital as shown in the company accounts has disappeared as a result of accumulated losses.

c. Where the undertaking is subject to collective insolvency proceedings or fulfils the criteria for being placed in collective insolvency proceedings at the request of its creditors.

d. Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee or has received restructuring aid and is still subject to a restructuring plan.

e. In the case of an undertaking that is not an SME, where, for the past two years:

  1. The undertaking's book debt to equity ratio has been greater than 7.5 and
  2. The undertaking's EBITDA interest coverage ratio has been below 1.0.